“I hate everything to do with accounting,” says the president and chief executive officer of Toronto-based Wave Accounting Inc. “That is generally the attitude of most small businesses.”

That’s why Mr. Simpson and long-time friend James Lochrie – who, as a former executive at a small-business accounting firm, knew a good deal about accounting – founded a company to offer easy accounting to small businesses.

Mayhew, a company that specializes in workplace design, has its office in Thornhill.

TALKING TO ENTREPRENEURS

When they say small business, Wave’s founders mean small business. Wave’s target market is companies with nine or fewer employees. That’s not to say the software won’t work for bigger firms, but Mr. Simpson says the needs of the smallest customers – including one-person home offices – interest Wave most.

“We’ve removed a lot of the complexity of accounting by reducing the amount of features that are in the application,” he says. And Wave doesn’t intend to pack more features into its product in an attempt to keep up with customers as they grow.

Companies that start out marketing small-business tools often migrate upmarket because expanding clients ask for new features. “We think that’s a mistake,” Mr. Simpson says. “Sometimes you have to say no to your customers.”

He admits that will cost Wave some customers that get too big for his software and move on. That’s fine, he says, because 67,000 new small businesses start in North America every month and businesses with fewer than 10 employees represent about 90 per cent of the Canadian business market.

Bruce Chin, Greater Toronto Area technology, media and telecommunications industry leader for consulting firm Deloitte, agrees with this “very focused approach to the market,” which he says is one reason Deloitte’s Fast 50 program, which Mr. Chin leads in Canada, last year recognized Wave as a company to watch. Deloitte is also Wave Accounting’s auditor.

“The market for their product is massive,” Mr. Chin says. And with few accounting software developers really addressing small businesses, Mr. Simpson likes to say Wave’s competition is the shoebox in which many entrepreneurs stuff their receipts.

Shawn Adrian was such an entrepreneur. Co-founder of three small businesses, Mr. Adrian says he and his partners simply handed shoeboxes of receipts to a bookkeeper until a friend recommended Wave early last year. Wave’s ability to import banking data and to handle multiple businesses “makes it really easy because all the money we make on any business goes into our bank account,” he says.

Based in Nanaimo, B.C., Mr. Adrian is a partner in a software development company called Input Logic Inc., QuoteRobot, which sells software for creating Web design proposals, and Exching, a used-clothing exchange business. He says Wave improves their decision-making by providing up-to-date financial data on the businesses.

ThirdOcean, a Toronto social media marketing company, was using FreshBooks, another small-business accounting product, but switched because FreshBooks starts charging when businesses reach a certain number of accounts. Karim Kanji, ThirdOcean’s co-founder and chief wave maker, prefers Wave to FreshBooks, saying it helps ThirdOcean manage its cash flow.

When Mr. Simpson and Mr. Lochrie started Wave, they intended to offer their software – which customers use via the Internet in a cloud computing model – for a modest monthly fee. But then they decided to make it free.

The key, as with many online services, was advertising. Wave Accounting’s twist lies in using its customers’ data to help target special offers from suppliers such as American Express Co., Bell Canada, Grand & Toy Ltd., and Dell Inc.

Mr. Simpson stresses that Wave doesn’t divulge any of its customers’ data to third parties. What it does is use that data to offer the customers deals likely to interest them. Suppliers get an effective way of reaching small businesses, and Wave’s customers get a chance at better deals usually available only to larger companies, he says.

The model is similar to that used by Mint.com, an online money-tracking service aimed at consumers launched in 2005 and acquired in 2007 by Intuit Inc. of Mountain View, Calif. Mr. Chin believes Wave has improved on the Mint model, offering advertisers more useful data.

Mr. Kanji says he hasn’t taken advantage of any of the special offers yet, but doesn’t find them intrusive. “It’s not something that kind of gets in your way at all,” he says. Mr. Adrian says he recently took advantage of a free trial advertising offer from Google through Wave.

While Wave plans to keep its basic package entirely free, it is pursuing the classic strategy of offering add-ons for a fee. The first of these is Wave Payroll, launched Feb. 1. It’s fully integrated with Wave Accounting and accessible from any Internet browser. Customers can open a Wave Payroll account for nothing, but they’ll pay $3 per employee each time the employees get paid, with discounts for companies with 10 employees or more (which, interestingly, would put them outside Wave’s stated target market).

The two biggest challenges for startups, Mr. Chin observes, are funding and talent. Wave Accounting has done well in addressing the first, obtaining $500,000 in seed financing from OMERS Ventures (the venture capital arm of the Ontario Municipal Employees Retirement System) last spring and other $5-million in a Series A round led by Cambridge, Mass.-based venture capital firm Charles River Ventures in October. As for finding talent, “at the beginning that’s always a challenge,” Mr. Simpson says. He believes it gets easier as the company establishes its reputation.

Besides its focused approach and advertising-supported business model, Mr. Chin says Wave has a great management team and investors and a good relationship with its bankers. And he praises Mr. Simpson for taking a global view of his market. “He is determined to build a Silicon Valley-style company in Canada,” Mr. Chin says.

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